Transitioning Regional Economies

54.3.3 Agriculture and the consolidation of towns

Many regions of Australia remain strongly connected to the performance of the agricultural sector. Agriculture is highly diverse across the country, ranging from largescale cattle properties in the north of Australia, to intensive irrigated horticulture in the MurrayDarling Basin. The drivers affecting agricultural regions also differ. Whether a region contains irrigated or dryland agriculture, forestry or fishing industries, produces commodities exposed to international competition, specialises in livestock or cropping, or undertakes landintensive or smallscale production affects how exposed the region is to various disruptions, such as currency movements, commodity price volatility and the weather.

Although this diversity presents challenges in identifying common patterns across agricultural regions, some broad trends have impacted on agriculture generally. In particular, farms are now larger and more productive. This has in part resulted in agriculture employing fewer ongoing workers than it once did. There has also been a centralisation of rural populations in larger regional centres which has resulted in a decline in the populations of some small towns initially established for farming communities.

55.Farm productivity has increased due to consolidation and the adoption of new technology

Many agricultural products are sold on competitive international markets or compete with imported produce for domestic markets. The prices that primary producers receive for these products have often not kept pace with the increase in prices for the inputs used. This includes wages paid to workers and the price and availability of water, fertiliser, seeds and chemicals. Notwithstanding a recent improvement in prices for farm products (largely reflecting a depreciation of the Australian dollar), the agricultural terms of trade¹⁷ in 201516 were 31 per cent lower than in 197475 (figure 3.12).

Productivity improvements and technological innovation, especially in cropping, have seen primary producers lower their costs of production. Drivers of productivity growth have included better and larger machinery, use of technology (including autonomous vehicles), new crop varieties (including genetically modified varieties), precision agriculture (the precisely measured application of fertiliser and water using sensor technology) and the increasing size of farms. Other drivers include the use of video technology for monitoring watering sets and the use of drones for mustering.

The supply of land for farming is unlikely to increase, given the competing demands from other sectors for that land (PC 2016c, p. 64). This means farmers will need to continue improving productivity, including through the intensification of farming. More intensive farming has allowed production to increase from existing land. This is partly due to more intensive production techniques being used by existing industries, including greater use of inputs such as feed, chemicals and irrigation systems to achieve higher production yields and reduce inputs (PC 2005, p. 42). Intensification can lead to land use conflicts and other issues. For example, intensive farming could raise environmental concerns for nearby residents (PC 2016c, p. 90).

Productivity improvements have differed across different types of agriculture. From the late 1970s, dairy (average productivity growth of 1.6 per cent a year) and broadacre cropping (1.5 per cent) have seen large improvements in productivity. These have exceeded productivity improvements for beef (0.9 per cent) and sheep (0 per cent) (Gray, Oss-Emer and Sheng 2014, p. 10).

Figure 3.12 Longterm decline of the agricultural terms of trade

Source: ABARES (Agricultural commodity statistics 2016).

Improvements in productivity have also taken place in the supply chain from the farm gate to market. For example, technology and changes in preferences have seen a move from rail to road transportation for many goods (PC 2016c, p. 382). Rural roads have improved and larger trucks are used to move grain from farms to fewer and larger receival sites (or even direct to port), which are located closer to main rail lines. More produce is being moved using fewer workers. There is further potential for productivity gains in this area. For example, there is substantial scope for improvements in transport regulations, such as better processing of heavy vehicle road permits, that would further reduce the burdens faced by agricultural producers (PC 2016c, p. 362).

As well as productivity improvements, the agricultural industry has also benefited from recent favourable international market conditions, including increased demand from Asia due to rising incomes and Australia’s reputation for quality produce, as well as the depreciation of the Australian dollar.

Productivity improvements mean less labour is required …

Higher productivity has meant that national agricultural production has increased over time, while requiring fewer inputs, including workers. The value of real agricultural production increased by about two and a half times over the four decades to 200304 (PC 2005, p. 17). This was achieved without an increase in the number of agricultural workers. More recent productivity estimates for the industry indicate that two thirds of industries experienced productivity growth¹⁸ in nearly all five year periods between 198990 and 201415. The economywide average rate of productivity growth was 0.9 per cent, but the agriculture, forestry and fishing industry had the highest growth (2.6 per cent) (PC 2016b, pp. 9–10).

As a result of these productivity improvements (and the associated reduction in demand for agricultural workers) and growth in employment in the services sector, employment in agriculture has fallen from 6.1 per cent of Australian workers in 1984 to 2.6 per cent in 2016. This reflects a much longer term decline in the agricultural workforce from the 1930s (figure 3.13). For those regions that have historically relied on agriculture, the reduction in employment in agriculture has resulted in ongoing adjustment. Fewer jobs in a region can have a number of simultaneous effects, including outmigration, growth in other industries, and unemployment. Offfarm income has also become increasingly important for agricultural workers (PC 2005, pp. 110–113).

Figure 3.13 Employment in agriculture has declined over a long period

Sources: ABS (Labour Force, Australia, Detailed, Quarterly, Feb 2017, Cat. no. 6291.0.55.003) and Commission estimates using Withers, Endres and Perry (1985).

Another form of income is from compensation for coal seam gas (CSG) mining and exploration made on agricultural (and other) land. Land owners (including many farmers) have been compensated for CSG mining on their land, particularly in Queensland, where there has been significant CSG development. For example, in Chinchilla, which has a population of about 7000 and 7080 farm businesses, it was estimated that compensation averaged $50 000 per farm in 2012. The income was not distributed evenly because some farms had more wells or infrastructure being put in place (Towler et al. 2016, p. 267). There is potential for improvements to the way landowners are compensated (chapter 5).

… But temporary workers are often needed

Many farms are familyrun, and hire few ongoing workers. The seasonal nature of agricultural work can make it difficult to attract and retain Australian workers. Consequently, farm businesses often rely on temporary workers, including overseas workers, to fit their seasonal labour requirements. Farmers also use contractors to meet their labour demands or to carry out specific activities, such as shearing (PC 2016c, pp. 444–445).

About 34 000 working holiday makers worked in the agriculture, forestry and fishing industry in 201516 (PC 2016c, p. 447). To a lesser extent, farmers also sponsor temporary skilled workers under the 457 visa program. There were about 900 new subclass 457 visas sponsored in the agriculture, forestry and fishing industry in 201617 (DIBP 2017).¹⁹

The number of people granted new subclass 457 visas in agriculture nearly tripled between 201011 and 201213 (from 473 to 1385) (DIBP 2017). This was in line with the broader trend for total new 457 visas granted, which also peaked in 201213 (box 3.7). Since that time the annual number of visas granted in the agriculture, forestry and fisheries industry has been steady at about 900. More than onethird of these visas granted in 201617 were for managers and professionals. People with managerial skills are likely to be needed more in the future, to help run farms that are becoming increasingly larger in scale. There may also be greater demand for highly skilled workers to operate sophisticated machinery and other technology used for farming.

Different types of agricultural activity use different sources of labour. A survey by ABARES on irrigation farms in the MurrayDarling Basin revealed that most farm employees in the vegetable and horticulture industries are seasonal workers, with most of these noncitizens (Valle, Millist and Galeano 2017, p. 5). The vegetable and other horticulture industries are more labour intensive than other agriculture industries. In contrast, the cotton industry has more fulltime employees, and those workers who are seasonal are typically Australian or New Zealand residents. To help attract more seasonal workers in horticulture, the Australian Government introduced the Seasonal Work Incentives pilot program on 1 July 2017 (Department of Employment, sub. DR75, p. 11) (chapter 5).

56.Populations in agricultural regions are consolidating into larger towns

There are now fewer people living in some smaller regional towns that were initially established for farming communities. Improved access to personal transport has meant that many people can now live in regional centres (where there is better access to services) while working in rural areas. The historical linkage between the development of regional towns and primary industry has also become less important (BITRE 2014, pp. 201–226). Indeed, those towns most reliant on expenditure by farmers have tended to have the lowest population growth (Levantis 2001, p. 34).

The services provided by smaller towns, such as banking and finance, retail, machinery repairs, professional services, education and health have consolidated to larger regional towns and centres. Service providers in small towns have had to compete with those in larger towns, which are often cheaper (because of economies of scale) and able to provide a wider range of services (BITRE 2014, pp. 227–252). Some businesses have become unviable and closed as a result. Once it becomes necessary for residents of small towns to travel regularly to larger towns for services, demand for other local service providers falls (BITRE 2014, p. 235). Wagga Wagga is an example of these changes (box 3.9). The decline of small towns is not a new phenomenon. Over the past century, a number of towns have lost many of their residents, with some towns depopulating entirely (box 3.10).

Towns with fewer services become less attractive for residents. In the absence of a local industry or other social connections, people will often relocate closer to regional centres, and if the population becomes too small, a cycle of business closures and further population decline can set in. This is particularly true after the closure of critical services such as medical general practitioners, schools and post offices. This will sometimes lead to shrinking towns with rapidly ageing populations as younger people move away to where local employment opportunities lie. Providing basic services (including, for example, a flexible local bus service) can be important to those remaining in such towns (chapter 5).

Population decline and the loss of services affects the people remaining in these communities. Some people who leave a region to pursue other opportunities may have played key roles in the community, for example by leading local sporting clubs or volunteer organisations (box 3.11). Population decline can result in a deterioration of a community’s social and cultural life, and a loss of local leadership expertise and skills. This trend is not unique to Australia, with many OECD countries experiencing similar trends. Nor is it a trend that governments should prevent. People move to larger population centres for employment and for lifestyles reasons. Trying to discourage such voluntary movements would be harmful to those people who would otherwise choose to move. Furthermore, it would be difficult to make all towns and cities grow in population or become economic centres. Attempting to stave off decline would hamper the growth of successful regional cities.

Box 3.9 A Wagga Waggacentric Riverina

The Riverina, in southern New South Wales, is primarily a cropping region, with wheat (the major crop) grown alongside rice, canola and barley. It also has a substantial dairy sector. Over time, the region’s population has increasingly centred on Wagga Wagga at the expense of smaller towns. The Riverina region grew by about 11 500 people between 1991 and 2016, with Wagga Wagga growing by about 9500 people (about 85 per cent of the Riverina’s growth). Much of the remaining growth was in the next largest town (Griffith), while most smaller towns remained stable or declined. Unemployment in Wagga Wagga has been trending down since 2010. When the Riverina was settled, the population was spread more widely on large pastoral holdings. A large number of small towns sprang up, providing services to the surrounding farms as well as housing (including for farm workers). While the major city (Wagga Wagga) provided specialised services, these smaller towns housed machinery and fertiliser suppliers and marketed farm products. During the 20^th century, the Riverina has seen a steady consolidation of the population into the regional centre. Improved transport facilities (especially roads and vehicles) increased competition between service providers in previously separated regional towns. Such providers had to ‘get big or get out’, creating pressure to consolidate into fewer, larger centres. Centres were often those residing on major transport routes, such as Wagga Wagga. As a result of centralisation, many nearby smaller towns have experienced population decline. For example, the population of Boree Creek has declined steadily over recent history (to 199 people in 2016). That said, the experience of towns in the Riverina was not uniform. For example, Junee has a correctional centre, providing an alternative employment base from traditional agricultural activities, and has staved off population decline. Furthermore, unemployment has fallen in Junee and the unemployment rate has declined from over 8 per cent in 2011 to under 5 per cent in 2017.

Sources: ABARES (2016); ABS (2013c, 2017b); Department of Employment (Small Area Labour Markets); Stayner (1996).

Many small communities around Australia are trying innovative approaches to address declining populations and the associated social and economic impacts. For example, the community of Nhill has focused on attracting immigrants to the region. Both the availability of jobs (at the local duck processing plant) and leadership were viewed as crucial in attracting people to the town (ABC 2015). A report by Deloitte Access Economics and AMES, a settlement agency, stated that this initiative has added more than $40 million and 70 full time equivalent jobs to the local economy (AMES and Deloitte Access Economics 2015, p. 4). Similarly, the pig industry in Pyramid Hill in central Victoria has attracted Filipino immigrants to the area. The Loddon Shire Council (2016) reported:

Shops in the township are fully occupied, residential development is on the rise and Pyramid Hill’s two schools are defying the enrolment decline experienced in many rural townships.

Box 3.10 Shrinking Australian towns — historical examples

Population movements have been an ongoing feature in the history of Australia’s regions. As reported by the Bureau of Infrastructure, Transport and Regional Economics, numerous towns in both the 1911 and 1961 Census, with a population of at least 500 in either Census, had populations of less than 200 by the 2006 Census. ‘Lost’ towns Historical examples of depopulated Australian towns include Irvinebank (Queensland), Farina^20 (South Australia) and Joadja (New South Wales). … the town of Irvinebank in Queensland, 80 kilometres southwest of Cairns, had a mining and tin smelting operation that grew to around 1300 persons by 1911 … However, during the twentieth century the town went into decline … [with] a population fall to below 150 persons by 1961. (BITRE 2014, p. 78) Between 1882 and 1884, Farina, 640 km north of Adelaide in the Lake Eyre Basin, grew to become the railhead for the Great Northern Railway. The town’s population peaked at 300 in 1894 but then began the slow, inexorable decline as hotels, post office, school and police station were closed until only the station owner and his family remain today. Drought, rabbits, relocation of the rail and the coming of the motorcar all are factors in the decline. (Olston 2008, p. 101) … Joadja’s vast shale deposits became a vital part of colonial life. Seams were excavated and the shale used to produce crude oil and kerosene, giving a power source and muchneeded economic boost to the colony. … At its peak, 1100 people lived in the Joadja valley, most of them working for the area’s key landowner and employer, the Australian Kerosene Oil and Mineral Company. … Shale was exported from Joadja to markets across the world from 1870 until 1904, when cleaner and cheaper methods of oil production were discovered. For several years after the mines shut down, people continued to live in the remote valley but by 1911 all had left … . (Stubbs 2012)

Source: BITRE (2014).

Box 3.11 Social fabric of communities — sport and the Mallee

Sport plays an important part in the social and cultural life of rural communities, contributing to ‘community identity, sense of place, social interaction and good health’ (Tonts 2005, p. 137). However, when population decline occurs, towns often face a difficult battle to retain sufficient players and fill the various administrative positions required to keep teams and leagues operating (Jackson 2011, p. 16). The decline of Australian Rules football clubs in the Mallee region of North West Victoria provides a clear example. The Mallee has experienced significant population decline and, as a result, the number of viable football teams has decreased. At the start of the 1980s, 16 teams were competing in two football leagues — the Northern and Southern Mallee competitions. These two leagues merged in 1997, and in 2015 the combined league was disbanded altogether. Of those original 16 teams, one team is still playing and two have disbanded. The remaining 13 teams eventually formed four teams in neighbouring competitions. Population decline and social impacts – North West Victoria Some locals have reflected upon the social and economic costs of the demise of the league. The former President of the league, Alan Malcolm (2015), noted: You lose the football team, the town suffers. Every town wants to keep their football and netball team because it’s such an important social fabric of the community. A local publican, Greg Wallace, highlighted some of the ways that the demise of local teams could be adversely affecting the community. It’s a really good way for farmers to talk to each other. It’s like a men’s shed where they can talk to somebody and it doesn’t matter … I am worried about depression in the future. (Malcolm 2015) Economic concerns with the remaining teams playing in neighbouring competitions were cited. Everybody will be going towards major towns to do their shopping, because they’ll go to places like Swan Hill every second week, Horsham every second week or Mildura every second week, so while they’re there they’ll do their shopping, That’ll make a big difference to our business. (Malcolm 2015)

Source: ABS (Regional Population Growth, Australia, 2016, Cat. no. 3218.0).

57.What does this mean for agricultural regions?

The combination of the above trends has contributed to a common pattern of declining employment in many agricultural regions, but positive growth in (most) regional centres that support them. As some agricultural regions also include regional cities and towns, the overall impact on employment and population can differ substantially. For example, two agriculturallyfocused regions which have had downward trends in employment over a long period (notwithstanding some volatility) are Western Australia – Wheat Belt and Murray (New South Wales) (figure 3.14). Employment in other agricultural regions has fluctuated, but there is no clear longterm pattern, particularly in those regions that also have regional centres.

Figure 3.14 Employment has been declining in some agricultural regions

Source: ABS (Labour Force, Australia, Detailed – Electronic Delivery, Oct 2017, Cat. no. 6291.0.55.001).

House prices in agricultural regions have tended to increase, although growth has been slower than for other types of regions. There has also been some divergence in house prices across agricultural regions. Prices in areas close to Perth (Toodyay and York – Beverley) experienced faster growth than areas further from Perth (Merredin and Mukinbudin) (figure 3.15). Not only are Merredin and Mukinbudin further from Perth, but they also have substantially lower annual rainfall levels, making the agricultural lands surrounding the towns more marginal for grain growing (Pook, Risbey and McIntosh 2012, p. 29).

Income levels in many agricultural regions are rising rapidly, due in part to improving market conditions (discussed above). In the Western Australia – Wheat Belt, median personal income rose by over 25 per cent between 201011 and 201415 (figure 3.6). In areas like York – Beverly and Mukinbudin, the growth rate was even higher. Even in regions like Murray in New South Wales, which has experienced a sharp downward trend in employment (figure 3.15), median incomes rose in line with the Australian average (15 per cent).

Figure 3.15 Rapid house price increases at the onset of the boom Selected Western Australia – Wheat Belt regions, at SA2 level

Source: Commission estimates based on CoreLogic data.

Finding 3.6 Efficiencies and technological innovation are generating higher levels of agricultural production using less labour. This is driving a longterm trend of lower employment in agricultural regions. There is also a pattern of consolidation from smaller towns to larger regional centres, which affects the social fabric of these communities.